You should make every effort to prepare or ‘groom’ your business so it is sold successfully at the first opportunity. While the financial advisors you appoint will work with you to address issues specific to your company, there are a number of general grooming points worth considering (even before you appoint advisors) to maximize the value of your business:

Sales & Profitability: Historically, you may have been setting your prices, and thus your profit margins, at levels designed to create barriers to entry for your competition. If you are planning for a business sale your focus is likely to be short term strategies. It will be time to re-examine your market and customer base to see if higher sales and turnover levels are achievable. If the proposed sale itself is a number of years away, you should consider performing a strategic review of the entire business.

Operating Costs: You should regularly review your operating expenses but this is especially so when preparing your business for sale. You need to identify avenues to reduce expenses without affecting the operational effectiveness of your business.

Profit Trends: Apart from current margins, a purchaser will be looking at profit trends. Buyers are looking to see stable and steady yearly profit trends. Therefore, risky projects should be avoided and longer-term contracts that may prove to be onerous should be fully considered before acceptance. Unprofitable contracts need to be reevaluated and, if appropriate, terminated, as it is quite possible they will be detrimental to the value of your business.

Management Team: The purchaser of your business will be looking to acquire a high caliber management team. It may be worth reviewing your corporate structure to ensure that job titles and role descriptions adequately reflect the contribution that your management team makes to your business. Any re-structure needs finalization well in advance of an anticipated sale. A purchaser may also want assurance that the management team is supportive of your decision to sell or at least that it is likely to stay with the business for a reasonable period post-transaction. You should consider talking to management - how cooperative will they be? You never know, they may be interested in buying the business themselves.

Asset Base: Are there any assets in the business that may be of little or no interest to potential purchasers- e.g. short-term investments, under-utilized property, equipment or perhaps surplus cash? Think about realizing and removing them from the business before the sale. It is also worthwhile having all your property assets valued individually.

Restructuring: If your business has more than one division, some thought should be given to restructuring it into a number of stand-alone entities and perhaps selling these separately. Any such reorganization will have potential tax implications and other complexities associated with it and it will be important to take professional advice before undertaking any such initiative.

Tax Planning: Details of the various tax factors that you need to consider are set out in section 4 of this guide. Initial points to address include making sure that all your Corporation Tax, PAYE and VAT returns and payments are up to date. In addition, any tax losses that your company may have built up over the years may now have a value to the extent that they are available for use by the potential purchaser. Personal tax planning opportunities should be discussed with your tax adviser.

Valuation Expectations: You must have realistic valuation expectations. Valuation is important but do not let it get in the way of securing the sale.
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Timing: Deciding the best time to sell your business can be a difficult decision to make. Factors to be considered when making this decision include the level of corporate activity in your industry; the state of the economy; changes in sector relevant legislation; and available tax reliefs (e.g. do you have to be a certain age to avail of certain retirement reliefs or pension planning opportunities).

Step 1- Business Planning (Days 0-90/ Months 0-3)

• Understand the owner’s personal, business and financial goals- Sale Readiness Assessment
• Collect data about the company- Company Information Questionnaire
• Prepare a detailed business valuation-GLM’s Business Valuation Report
• Develop and action plan to Prepare the Business for Sale- Succession Planning Approach

Step 2- Pre-Market Preparation (Days 90-180/ Months 3-6)

• Conduct in-depth industry research: Reference USA & 2018 Business Reference Guide
• Prepare Generic Executive Summary and Marketing materials about company

1. General Information Executive Summary (No Business Name or location)
2. Buyer Nondisclosure Agreement
3. Complete Executive Summary (Company name and Adjusted Financials)
4. 3 Way Confidentiality Agreement (To be signed before seeing complete financials)
5. Complete Company Description

• Develop marketing plan to sell company- Suggested Next Steps
• Identify prospective buyers- Reference USA Custom Lists

Step 3- Going to Market (Days 180-270/ Months 6-9)

• Market company on confidential basis
• Secure nondisclosure agreements from prospective buyers
• Schedule and conduct management presentations and site visits
• Secure Offer to Purchase- qualifying bids or indications of value from buyers

Step 4- Negotiation (Days 270+/ Months 9+)

• Analyze offers and terms to help client decide best option
• Manage key relationship with buyers
• Assist with negotiations of Letter of Intent
• Obtain final signed letter of intent
• Coordinate the due diligence process
• Assist with negotiations of purchase and sale agreement

Step 5- Closing (Days 270+/ Months 9+)

• Work with attorneys to draft the definitive purchase and sale agreement
• Help to resolve and open issues between parties
• Coordinate with seller and buyer on strategic planning issues
• Close the transaction

​Family (Personal) Challenges
 
Emotions and inability to separate business and family. Family problems and dynamics will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.  Emotions can interfere with business decisions, and trying to make one another happy constantly is unrealistic.
 
Tunnel vision. Lack of outside opinions and diversity on how to operate the business.  No-one, like a business coach, to ask the tough questions.
 
Role confusion. Roles and responsibilities (for active and passive family members) must be clearly defined. Absence of clear written policies and business norms for family members.  Going from family character to business professionalism can create confusion.
 
Paternalistic and Overly Conservative. Control is centralized and influenced by tradition instead of good management practices.  Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation.
 
Communication problems. Usually provoked by role confusion, emotions (envy, fear, anger), political divisions or other relationship problems create barriers to effective communication.
 
Retirement and estate planning. Long term planning to cover the necessities and realities of older members when they leave the company.

When you own a family business, there are two types of challenges you have to deal with; Business Challenges and Family Issues. We will talk about both, this week starting with Business Issues.

Business Challenges
 
Lack of written strategy. No documented business plan or long term planning. Decisions are made day-to-day in response to problems. No long-term or strategic planning.
 
Control of operations and compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.  Lack of participation in the day-to-day work and supervision required. Which family members are shareholders vs. daily management.  Difficulty controlling non-participating members of the family.
 
Vision, Growth and Expansion. Each family member has a different vision of the business and different goals. Problems due to lack of capital and new investment or resistance to re-investment in the business.  What measures must be taken to grow locally, nationally, and internationally.
 
Succession Planning. Most family organizations do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions.  Problems when the next generation is not adequately prepared for take-over.  There are some specific issues related to the third generation.
 
Business Valuation and Exit strategy. No knowledge of the worth of the business, and the factors that make it valuable or decrease its value.  No clear plan on how to sell, close or walk away from the business.
 
Lack of talent and Training. Hiring family members who are not qualified or lack the skills and abilities for the organization. Inability to fire them when it is clear they are not working out.   There should be a specific training program when you integrate family members into the company. This should provide specific information related to the goals, expectations and obligations of the position.
 
High turnover of non-family members. Happens when employees feel that the family “mafia” will always advance over outsiders and when employees realize that management is incompetent.

Financial Buyer
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Financial buyers are generally influenced by a demonstrated return on investment, coupled with their ability to get financing on as large a portion of the purchase price as possible. Working on the theory that debt is the lowest cost of capital, these buyers purchase businesses with the sole purpose of making the maximum amount of money with the least amount of their capital invested.

No matter which buyer types is interested in your business, when it comes to ownership transfer, the highest price bid may not be the best deal for you. A number of critical issues could override a decisive price difference among competing bids:

• Financial ability of the bidder to close the deal.
• Contingent liabilities that you must accept for some period after the sale, such as those related to environmental problems, pending litigation and the salability of stocks.
• Contingencies or ‘outs’ in the buyer’s offer, such as due diligence, environmental audits, financing, board or parent company approvals.
• Employment agreements for the seller and key employees, including length and level of compensation.
• Form and timing of consideration to be paid if other than cash, such as loan notes, shares and earn-out.

The strategic, synergistic and industry buyers are similar so I have put them together in this blog post.

Strategic buyer
This buyer is usually a company, having as its goal entering new markets, increasing market share, gaining new technology, or eliminating some element of competition. In essence, it is part of this buyer’s “strategy” (hence the name) to acquire other businesses as part of a long-term plan. Strategic buyers can be either in the same business as the company under consideration, or a competitor.

Synergistic buyer
Synergy means that the joining of the two companies will produce more, or be worth more than just the sum of their parts. Example: A large real estate company purchases a mortgage company. It can now use its existing customers (those who buy homes) and offer them the mortgage funds to finance their purchases.

Industry buyer
This type is often a competitor or a highly similar operation. This buyer already knows the industry well and, therefore, does not want to pay for the expertise and knowledge of the seller. These buyers will pay for assets (but probably not what the seller thinks they are worth); they will not pay for goodwill, covenants not to compete, or consulting agreements with the seller.

Individual Buyer
The first buyer type is the individual buyer. This is typically an individual with substantial financial resources, and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both money and time. The individual buyer will hit a strong bottom line when it comes to price. Therefore, these buyers will usually limit themselves to transactions involving less than $1 million cash.

​The individual buyer may have experience in the industry of the business for sale. They could have been saving for just this type of situation, or possibly have other resources to finance the purchase.

​The individual buyer looks like someone that might even work in the business for sale. Maybe the General Manager or another key employee. In this instance, identifying the person within the company early is beneficial. A Succession Plan can be developed to include the process the employee follows to buyer the company. This can include seller financing, secure a SBA loan, or a conventional bank loan.

If there is nobody within the organization that is interested or able to buy the business, the current owner may need to take it to the open market. Business for sale websites and other marketing maybe involved. If the business owner does not want to risk letting the world know it is for sale, they should begin succession planning earlier.